Reynolds American (NYSE:RAI) Says “No” To $47 Billion BAT Takeover Bid

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Reynolds American Inc. (NYSE:RAI), based out of North Carolina, is the second largest cigarette seller in the United States. It was reported earlier by sections of the media that the company was in talks with British American Tobacco of London, UK, over the possibility of a takeover bid. Incidentally, British American Tobacco (LON:BATS)  already owns about 42 percent share of the American firm.

That bid eventually happened last month. The British business reportedly offered $47 billion to RAI to take over the remaining 58 percent of their share. Reynolds American, which is the biggest listed tobacco business in the world, makes the Newport and Camel brands of cigarettes.

Reynolds American Rejects the $47 Billion Takeover Deal

However, Reynolds American, after due consideration, have decided to reject the offer. A company statement was issued which said that RAI expects more money from British American Tobacco than the initial offer of $47 billion because the business value and its market presence are higher than what has been offered.

Bloomberg reports that the British firm is OK with increasing the price, but it may only be a slight increase eventually. It could just be a negotiation strategy of Reynolds. It remains to be soon how much higher the offer price gets finally, and whether Reynolds American is happy with the new price. The two businesses are still in talks.

Both the companies denied making any comments.

On Monday, the Reynolds American (NYSE:RAI) stock closed at $53.05, down 0.99 percent. However, the stock has gone up by close to 15 percent this year, an impressive run. The market capitalization of RAI is $76 billion as of Monday. The British American Tobacco stock was also down on Monday by 1.06 percent.

Big Players in the US Cigarette Market

The Altria Group, which is the largest producer and marketer of tobacco products in the world, has 51 percent market share in the United States. The company makes Benson & Hedges, Marlboro, Virginia Slims, L&M, Bond Street and other brands of cigarettes. Philip Morris USA is a subsidiary.

Reynolds American, Inc. comes second after Altria, with a 34 percent market share. Analysts are saying that if the Reynolds American-British American Tobacco deal goes through, then 40 percent of the British form’s sales and 50 percent of their profits will come from the US.

To counter this move, Philip Morris USA is also considering a merger with Altria. The two companies had separated in 2008, with Philip Morris becoming a subsidiary.